BAE Systems – Full-Year Guidance Reaffirmed

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BAE Systems plc (LON:BA)’s full-year guidance remains unchanged, with sales forecast to grow by 3-5% from £23.3bn. Underlying operating profit growth’s expected to outpace this, moving 4-6% higher from £2.5bn.

Group CEO, Charles Woodburn, said that the group’s “global presence and diverse portfolio of products and services provide a high visibility for top line growth, margin expansion and cash generation in the coming years”.

UK, US and European defence budgets are all expected to increase over the coming years. Given the defence spending environment and order intake so far this year, BAE once again expects orders to exceed sales for the full year.

As previously announced, Sir Roger Carr will step down as Chairman at today’s AGM, having served his full allowable term.

The three-year buyback programme for up to £1.5bn, which commenced in July 2022, is now over 60% complete.

The shares were broadly flat following the announcement.

BAE Systems’ Earnings

“There were no big surprises from BAE Systems in today’s update. Many governments are expected to continue raising their defence budgets amid escalating global tensions, and BAE’s diverse geographic reach means it’s set to benefit by capturing this extra spending.

That’s reflected in bumper order intakes so far this year which are once again expected to exceed full-year sales. These orders are typically long-cycle too, spread over several years, so it gives BAE multi-year revenue visibility. An enviable asset to have in uncertain times.

That’s led BAE to reaffirm all of its full-year guidance. Underlying earnings per share growth is expected to outpace sales growth this year, helped by a buyback programme that’s moving full steam ahead.

But ultimately, the group’s profitability is based on its estimates of revenues and future costs. And the long-term nature of many contracts means that the related risks and costs can change over time too. While we think BAE is in good shape to deliver on its long-term growth strategy, uncertainty around future costs will remain a risk.”

Article  by Aarin Chiekrie, equity analyst at Hargreaves Lansdown